The voluntary administration and now restructuring procedures provided for under the Corporations Act can be used to preserve enterprise value in businesses experiencing cash flow difficulties. For there to be enterprise value worth preserving and potential for a viable turnaround business owners must take positive steps well before hitting a terminal cash crunch.
In our experience trading businesses which ultimately require an external appointment have usually been struggling to stay afloat for some time, engaging in negotiations with their bank, entering payment plans with creditors including the Australian Taxation Office or seeking further equity. Business owners are, on the whole, optimistic people though and when they experience these pressures will sometimes rely on their subjective reactions (as to how well a meeting went, for example) or factors such as a creditor failing to take recovery proceedings rather than on the potentially bad news contained in their balance sheet.
Now that COVID-19 restrictions are coming to an end we are seeing a slight upturn in the amount of debt collection activity being undertaken and some early signs of more significant business failures. It is therefore an ideal time now for business owners to ensure their records are right up to date and to carry out a warts and all review of their position. This will give them the best chance, in the worst case, to preserve the value and ideally their own personal investments in their businesses some way down the track.
Cowell Clarke has significant experience in providing advice to business owners or directors as to their obligations when a company may be insolvent. Contact us if you want to discuss this type of matter or any other business related matter.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.